Money has no Inherent Value

in #cryptocurrency7 years ago (edited)

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A frequent argument made against Bitcoin and cryptocurrencies in general is that they have no "inherent value". As Adam Smith, one of the founding fathers of modern Economics understood, however, money has no inherent value! The purpose of money is to function as a safe store of value to enable the trade and financial transactions that take place under free market conditions.
Various standards of value such as gold and nation-state backed currencies have been proposed, but none of them has proved to be universal, nor has their price been immune to inflation and other disruptive influences; therefore none of these "currencies" have proven to have any inherent value, their value is based on human belief alone.
As technology, and especially information science, develops, the necessity for a safe, transparent digital currency becomes unavoidable, a currency that is not backed by nation states or banks, but is valued in virtue of being a safe storage of value and the best means for financial transactions.

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“As technology, and especially information science, develops, the necessity for a safe, transparent digital currency is unavoidable, a currency that is not backed by nation states or banks, but is valued in virtue of being a safe storage of value and the best means for financial transactions.”

You nailed it!

All that is needed is something VALUED without coercion, without government mandates without borders. We are at the front door of a new age.

Thanks! Indeed there are plenty of things that have inherent value, but are not used as a general medium of exchange (aka money), such as cars, laptops, anything really. The essential characterisitics needed for a good medium of exchange are many, and all of them can be programmed into a digital currency. We WILL have a general digital currency, just like McAfee said.

Could there ever be crypto-inflation? A copper penny (pre-1982) for your thoughts.

Depends on the digital currency. Digital currencies built on a blockchain cannot be inflated in the regular sense, because the total supply is fixed and cannot be altered once the currency has been launched. Bitcoin, specifically, has been built with the goal of avoiding central interference in mind. It has a small fixed supply that will eventually be completely mined and the proof-of-work method of obtaining Bitcoin ensures, that Bitcoin will be distributed on the basis of individual stake towards the system. The biggest problem with proof-of-work in my view is that Bitcoin was probably not designed to take off the way it did, the large number of users obtaining and transacting Bitcoin produced scaling issues and made mining so difficult, it could only be done in industrial conditions spending electricity the common individual cannot afford, or in "mining pools"thereby making mining inconsequential as a Bitcoin distribution mechanism. So, Bitcoin is not under the threat of inflation in the common sense, but there is a threat that it will become dominated by whales who freely manipulate the price, spreading FUD, and producing maximum volatility in order to fatigue the common user into selling their BTC at a bad rate.

Besides Bitcoin there are digital currencies that are vulnerable to a sort of inflation, XRP for example. XRP has a very large circulating supply and has personally premined a large part of their currency in order to fund various necessary operations. This creates a big risk for the XRP user, if Ripple managment decides to flood the market with previously out of use tokens, the price will plummet. It is not in their interest to do so, but they have openly flaunted with the power to do so.

The key challenge in my opinion is to produce a self-sustaining, decentralized digital currency that has no significant in-built engineering mistakes and therefore does not need any sort of central fixes, otherwise we are simply transacting digitally, but still suffer under the same problem of trust that comes with using fiat.

Thank you for your comment!

Thank you for your excellent explanation.

Excellent post, @cryptoasis! It is so true too, especially once Nixon removed the gold backing of the USD. Some speak of the US Dollar as the pedro dollar, because of the complex web they've weaved oil into the equation, while an argument could also be made that it is a military backed currency. All the best

Thanks for being my 200th Follower. Just Upvoted, Followed, and Resteemed.

Understand the excitement around cryptocurrency. Investing just like everyone else here. Steemit makes a value add. Being a place to use it.

Also, invested in industrial Hemp. Lots of value in farmland and use for most consumer goods. Energy for crypto mining. Even helps solve climate change. Yet the stock struggles without bank involvement.

Cryptocurrency helps, yet seems to be taking a beating now from the powers that be.

We'll see. Keeping the faith.

Thanks for everything!

Indeed cryptocurrency has been under some heat, but let's look at the big picture here. We are talking about a revolutionary technology that is still in its early stages of development. In my opinion, the present 5-10 years are probably going to be the most exciting times to be involved with cryptocurrencies period, because in a ten year timeframe digital cash and different blockchain applications will probably be so commonplace, that extreme innovation will take place somewhere else.

We live in interesting times!

Money is just an agreement. Government issued money can have that agreement changed. Cryptos are money based on mathematics - the best cryptocurrency will have rules that do not change.

Agreed, the only way for a cryptocurrency to solve the problem of trust is to create an unalterable digital currency that has no known weaknesses or engineering mistakes.

Thank you for commenting!

Thanks! Followed you too